A Quick Explanation of ‘Insurable Interest’

by Kelly Troy on June 7th, 2011

What is 'Insurable Interest'?An insurable interest exists when an insured party derives a financial or other kind of benefit from the continuous existence of the insured object. For example, you derive a benefit from your home not burning to the ground.  A party also has an insurable interest in something when loss-of or damage-to that object or item would cause the insured party to suffer a financial or other kind of loss.

As an example of a suffered loss, the house you own is destroyed by a fire. Because of this, it’s value has been greatly diminished and whether or not you choose to have the home rebuilt or simply sell it at a reduced price, the fact remains that you have suffered a financial loss resulting from this fire.  The loss is either (1) the loss of value in the property or (2) the cost to rebuild the property.  You have an ‘insurable interest’.

However, if it’s your neighbor’s home that burns down, you may feel sorry for them, but you yourself did not suffer the loss and you do not directly benefit from their being able to live in their own home, so you obviously do not have an insurable interest in this property.

A basic requirement of all insurance is that the party purchasing a policy must have an insurable interest in the subject of the insurance. You obviously have an insurable interest in any property you own or any property that is in your possession and with regards to typical property and casualty insurance, this insurable interest must exist both at the time the policy is purchased as well as the actual time a loss occurs.

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Kelly Troy

ABOUT THE AUTHOR: Kelly Troy is founder and President of InsuranceForInvestors.com as well as an active real estate investor himself, purchasing and ‘rehabbing’ both residential and commercial properties and actively engaging in non-traditional investing throughout the United States. As the founder of “STREETSMARTinvesting” as well as the developer of the “Riches in Rehabs” and “Riches in Rentals” investor programs; he has traveled extensively to host workshops and impart to other investors and real estate professionals the same principals and skills that he himself has learned regarding how to successfully profit from purchasing real estate. Kelly also established his own successful real-estate investor’s group and he is a frequent guest speaker at other REI groups and he often hosts local investing workshops in addition to teaching TREC-approved MCE courses for licensed real estate professionals. Kelly is also a combat veteran of the United States Army Infantry as well as an active member of his community, serving on several City and Regulatory Boards and having either Chaired or actively served on the Board of Directors for many professional and community organizations. In addition, after having spent several years as a traditional mortgage lender, he founded his own private-lending firm, Genesis Funding Solutions, and he was a hard-money lender underwriting and managing private loans to investors for projects of all types across the country. He is also extremely well-versed in all forms of seller-financing and in brokering privately-held mortgage notes. Prior to his investing career, Kelly was also a professional safety and risk consultant having developed many safety and risk management programs in various industries and he traveled frequently developing and implementing industrial and manufacturing processes, safety, and quality assurance programs throughout both the United States and Europe. He also worked for the Texas Worker’s Compensation Commission (TWCC) as well as the OSHA Consultation Program (OSHCON) as an Industrial Hygienist and he is; therefore, extremely familiar with risk management and loss mitigation, personal liability, worker’s compensation, and commercial risks. While having owned a previous agency with Farmer’s Insurance Group, he was chosen from over 150 agents as the President of the graduating class at the University of Farmers in Los Angeles, California and he was later recognized as one of the Top 25 commercial agents in Texas.

This entry was posted on Tuesday, June 7th, 2011 at 1:21 pm and is filed under Legal Topics, Miscellaneous, Mortgage Issues, Seller-Financing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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